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Detroit Free Press Business Writer

Firms that have contracts with Detroit

ERNST & YOUNG

Financial restructuring adviser in charge of developing a long-term financial plan and ensuring sufficient cash flow through the restructuring process, assisting other firms in negotiating with unions and forecasting pension and retiree liabilities. $6.6 million CONWAY MACKENZIE

Operational restructuring adviser in charge of analyzing city departments to find ways to save money and enhance revenue. $4.2 million PLANTE MORAN

Operations adviser in charge of assisting efforts to improve property tax and assessor’s offices. $2.3 million increase to a previous $1 million contract. MILLIMAN

Investment banker advising the city on capital markets issues, such as refinancing actions and possible asset sales. $1.8 million JONES DAY

Legal counsel negotiating with stakeholders, including creditors, in an attempt to settle the city's debt out of court. $3.35 million maximum for seven months and a $575,000 monthly cap afterward or after a bankruptcy filing. MILLER CANFIELD

For the first six weeks on the job, Jones Day law firm racked up legal fees of nearly $1.4 million for the City of Detroit as it prepares for a major restructuring that could result in the largest municipal bankruptcy in U.S. history.

It is just one of many eye-popping bills city and state taxpayers will have to cover as legions of bankruptcy lawyers, financial advisers and other consultants work on a restructuring that could cost more than $100 million, said Douglas Bernstein, partner with Plunkett Cooney in Birmingham.

“It is certainly one of the reasons that you want to get a resolution more quickly, because the longer it goes, the more money gets burned by paying professionals ,” Bernstein said.

In its bid for the city contract, Jones Day said its hourly rates for bankruptcy attorneys typically run from $425 to more than $1,000 per hour.

Though no city as large as Detroit has ever declared bankruptcy, some comparisons exist, such as Orange County, Calif., which accumulated $86 million in bills during its 18-month stay in bankruptcy that ended in 1996, according to reports. Jefferson County, Ala., which is still in bankruptcy, has spent nearly $20 million in legal fees since August 2011, according to reports.

Jones Day billed Chrysler more than $43 million in 2009 for its Chapter 11 bankruptcy, and Weil, Gotshal & Manges of New York billed General Motors nearly $72 million.

So far, Detroit has agreed to spend $14 million and has contracts with nine firms to provide a range of financial and legal services . The costs of entering Chapter 9 bankruptcy would be much more. The state has agreed to cover some of the city’s consulting fees .

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Detroit Emergency Manager Kevyn Orr — who resigned as a partner with Jones Day to accept the EM appointment from Gov. Rick Snyder in March — said Monday the law firm is charging less than it normally would . He said he believes it’s money well spent, given that creditors will have significant legal firepower .

“We need the A team,” Orr said. “We need the best available, because I guarantee you this, the people on the other side, they have the best available. They’re making their moves, and I don’t want to be handicapped in any way. .”

Detroit’s major creditors are represented by some of the most prestigious firms in the U.S., including New York-based Sidley Austin, and Chicago-based Winston & Strawn and Kirkland & Ellis.

The cost of bankruptcy has been controversial in the U.S. for decades. .

“The fees tend to be very high. Part of that is the work is very intense and part of the issue is ... the professionals involved sometimes end up sort of running everything,” said Justin Klimko, president of Butzel Long, a local firm that’s not directly involved. “It’s unfortunate in a case when you are talking about preserving assets that so much of it gets eaten up in administrative costs.”

Local firms won't be left out

Miller Canfield, Conway McKenzie, Plante & Moran and the Detroit office of Ernst & Young are deeply involved in the city’s restructuring and will help to determine the city’s future.

Two other Detroit firms — Clark Hill and Bodman — represent creditors that could be pivotal in the city’s restructuring.

Clark Hill represents the city’s two pension funds, which Orr says are underfunded by as much as $3.5 billion. Bodman represents the holders of the city’s water and sewer bonds.

While local firms are bound to serve the interests of their clients, they also are more likely to see a direct link between the city’s success and their own future stability.

Located at 150 West Jefferson Ave., Miller Canfield is about 300 feet from City Hall. The firm has had a relationship with Detroit for more than 100 years.

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“We are committed to this city. It’s our home and we are proud that it is our home base and our world headquarters, ” said Miller Canfield CEO Michael McGee.

Birmingham-based Conway MacKenzie, which declined to comment for this story, could have the most difficult job of any of the firms Detroit hired. Charles Moore, senior managing director of Conway MacKenzie, is in charge of reorganizing the city’s major departments.

Ernst & Young is headquartered in New York, but the accounting firm has a large downtown Detroit office with more than 500 employees. Gaurav Malhotra, a managing partner from Chicago, is leading Ernst & Young’s team and has been crunching numbers for the city.

Jones Day pushes Midwest roots in Detroit bid

In a bidding process that began Feb. 27, Jones Day prevailed over 13 other firms. Among them were Detroit-based Dykema, Butzel Long, Jaffee Rait, and Plunkett Cooney.

Jones Day is the nation’s third-largest firm and viewed as among the best. According to its 209-page bid, the firm is giving the city a discount price; the pre-bankruptcy work would normally cost at least $5 million but is capped at $3.35 million, plus a maximum of $575,000 per month if the city enters bankruptcy, according to the bid.

In its proposal, Jones Day emphasized its Midwest roots and its work as Chrysler’s lead counsel.

The contract comes with the prestige of leading the city’s restructuring — a process that most bankruptcy experts say is likely to set new precedents .

“I think the attraction, in part, is that they are going to have to break new ground no matter what they decide,” said Henry Miller, the retired co-founder of Miller Buckfire, which is representing the city as its lead investment advisor. Miller is now chairman of Marblegate Asset Management, a hedge fund.

Local firms disappointed, not surprised

Butzel Long’s Klimko said Butzel and other local firms could pick up smaller advisory roles as Detroit‘s restructuring process evolves.

Klimko said law firms had about a week to respond after receiving the city’s request for bids on Feb. 27.

“We scrambled to respond and we did,” Klimko said. “The (request for a proposal) itself sort of came out of the blue.”

And other local law firms could still gain work as more of the city’s 42 unions and vendors hire legal counsel.

While those unions typically have staff attorneys or law firms that provide advice during normal discussions with the city, they are likely to find themselves in need of additional legal advice if the city files for bankruptcy.

“Some creditors have foresight and they hire lawyers and professionals sooner. Others don’t do it until a bankruptcy is actually filed,” Bernstein said.